What is a 1031 Exchange?

1031 tax deferred exchange is a way to postpone capital gains or loss from a sale of property through purchasing another like-kind property within a certain time frame. Although there are several kinds of 1031 exchanges, the Delayed Exchange is the most common.  

“Under Section 1031 of the United States Internal Revenue Code (26 U.S.C. § 1031), the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.” http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031

1031 tax deferred exchange is a way to postpone capital gains or loss from a sale of property through purchasing another like-kind property within a certain time frame. Although there are several kinds of 1031 exchanges, the Delayed Exchange is the most common.  

“Under Section 1031 of the United States Internal Revenue Code (26 U.S.C. § 1031), the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.” http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031

Through the 1031 tax deferred exchange program, property investors are able to reinvest the sale proceeds into another property of equal or larger value.  This has been a common platform property investors have been using over time to create great wealth.

Before the property is sold, escrow will make the necessary arrangements for the 1031 exchange.  At the close of escrow, the proceeds from the sale will be transferred to an Accommodator also known as a Qualified Intermediary.  (A Qualified Intermediary is an independent party who facilitates tax-deferred exchanges pursuant to Section 1031 of the Internal Revenue Code. The QI cannot be the taxpayer or a disqualified person.) http://www.1031.org/about1031/faq.htm

The investor will have 45 days from the date the downleg(relinquished property) is transferred to identify potential exchange properties. There are several different rules on property identification but the 3-property rule seems to be most popular. Within 180 days from the close of escrow of the downleg, one of the three identified properties must be purchased.

Most investors selling their investment property will begin looking for an exchange property from the moment they put their own property up for sale. So in general, if the sale property takes approximately 90 days to close escrow(30 days of marketing & 60 day escrow), they would have additional time to identify several replacement properties and close escrow on the upleg(replacement property).   

Here is a great place and resource to learn more http://www.ipx1031.com/reexchanges.aspx

Eric Nishimoto Commerical Real Estate - San Fernando Valley and Conejo Valley

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San Fernando Valley Buildings Getting New Firerry Look

I recently got a call from a client of mine who reported that there was a fire in his shopping center in North Hills.  Aside from the bizarre entrance into the burnt space through a hole in the wall from the tenant next door (that's how they got in) we also noticed the new skylight remodeling where the fire department battled the blaze and salvaged the rest of the building.

Driving on Corbin in Northridge, I noticed a shopping center with distinct firerry charcoal look on the second floor. 

Over the past weekend, yet another fire in Van Nuys almost decided to take out another building a client of mine had interest in. 

Are the  summer days already here? Did we forget that all this rain gave way to new growth in the mountains and valleys. They will dry up you know.

I think something smells burnt! Is my firerry theory up in smoke or really a scheme businesses underwater can make out good from a bad situation. 

 A close friend of mine in the insurance biz had mentioned to me that there has recently been a string of  large insurance payouts for business owners in similar businesses that went up in smoke. It just so happens they lost all their non-selling inventory and business to a fire.

Vacancy has been on the rise. Recent insurance $/SF has jumped 10 fold due to vacancy. Why, the probability of vandalism is always greater in shopping centers with vacancy. Not to mention all the properties with debt service too great to carry for owners. O ya, I forgot that there are taxes and insurance to pay as well.  Can a landlord afford this kind of price hike on insurance. I suppose on the other hand, if you were a landlord also underwater with a vacant building, a firerry makeover might have crossed your mind at one point. But we all know that's against the law.